CEREAL EXPORT: CROSS BORDER TAX EVASION OR JUST A SETTLING OF SCORES? Exporters are asking for their money, the State hits back with closer investigations

• Cereal exporters have over EUR 100 million in unpaid VAT to recover from the State by the end of April

• The Government is going for harsher controls and investigates exporters for tax evasion

• The lump sum tax will double the number of tax offences and will cause prices to rise

Cătălin Deacu

Prime minister Emil Boc requested that members of the government begin an investigation of wheat exporters which are suspected of tax evasion, government sources stated for "BURSA".

The head of the Government recently asked several ministers, Dan Nica (Minister of Administration and Internal Affairs), Ilie Sârbu (Minister of Agriculture), and Gheorghe Pogea (Minister of Finance), to begin an investigation on whether cereal importers/exporters cheated the State by doing VAT related "financial engineering", according to official sources.

The government is struggling to raise more funds for the state budget that has been seriously affected by the crisis, and one of the solutions it has come up with is to keep a closer eye on the grain trade sector, as there are floating suspicions that some companies operating in this sector have withheld VAT they owe the State or have benefited from fraudulent VAT reimbursements.

Several companies are suspected of only doing exports "on paper", meaning the grain never leaves the country, which allows them to ask for VAT reimbursements from the state.

Cereals are usually exported in autumn, when prices are low due to the new harvest, and in spring, between the two harvests, grains are fictitiously "brought back" into the country, at a time when prices have risen due to the increase in market demand.

In doing this, business men win twice: first by collecting VAT from the state, and from the price increase or their wheat reserves.

99% of Romania"s grain exports are done outside the European Union, says Viorel Marin, chairman of ANAMOB (Romanian National Association of Flour Milling and Baking Industries). Cereal trade within the European Community is exempt of customs duties.

Of course there are cases of companies that export the goods and are legally reimbursed their VAT by the state. However, companies cheating the State on their imports, bring the grain in by using fictitious companies.

Many dummy companies brought the grain in and were thereafter immediately dissolved, thus cheating the State out of its due VAT.

Shedding light on these networks is hard to do (ed. note. dummy corporations are either sold to people who don"t have anything to do with these deals, or they simply disappear without a trace), and in some cases there is no desire to actually do an investigation, as sometimes there are higher interests involved...

When the law decreeing the payment of VAT at the customs office upon crossing the border, some businessmen decided to import grain in other EU countries, such as Bulgaria or Greece, to sidestep this obstacle.

Give the situation described above, the State is the perfect victim, and if we take into account that last year"s harvest was a record 7.75 million tons of cereal, according to official estimates, and wheat exports amounted to around 1.2 million tons, the losses from VAT fraud related to cereal trade could be staggering.

According to statistics, the State loses over 1 billion Euros a year from uncollected VAT for food products, and official reports show that 40% of cereal trades are done off the books.

The prime minister is well within his rights to request an investigation of the grain market, where tax evasion is rampant, but the government"s actions raise a few questions.

Before exporters get their VAT back from the State, they have to pass close verification. Additional investigations are obviously required, but the question arises: why now of all times, whereas this thing has been going on since as far back as 1991, according to some sources.

There are suspicions that the reasons behind the Government"s actions are simply a settling of scores with some companies that are either trying to shake off the government"s control (meaning they are no longer paying their political contributions), or it could be that those companies that are requesting the reimbursement of the VAT have caught the government at a bad time, just as the crisis is in full swing.

"The State has over EUR 100 million in VAT disbursements to pay by the end of April", Viorel Marin said.

The chairman of the ANAMOB does not rule out the possibility that the government, may have decided to tighten the control of companies simply as a form of punishment.

On the other hand, what"s really interesting is the fact that right now, the domestic wheat market has enough grain in stock to last it until the next harvest, says ROMPAN chairman, Aurel Popescu.

"Out of last year"s record harvest, 1.2 million tons were exported, but it is hard to believe that anyone would try to speculate on the price at a time like this, when there is enough wheat on stock to cover the domestic demand until the next harvest", says the ROMPAN official.

In order to fight tax evasion, the Government has decided to increase the tax base by introducing the lump sum revenue tax.

However, leaders of the two professional organizations of the cereal market warn that the introduction of the new tax will actually increase tax evasion.

The chairman of ANAMOB, Viorel Marin, considers that in its current form, the lump sum tax will cause tax evasion on the cereal market to skyrocket.

"The only way the lump sum tax was going to work was if it had been correlated with a cutting of the VAT down to 5%", Viorel Marin said, who added that, under the current circumstances, where the VAT of 19% encourages companies to sell off the books, "we will have tax evasion both on the VAT and the lump sum tax".

This opinion is shared by Aurel Popescu, the president of ROMPAN, who claims that this additional form of taxation will lead to tax evasion and price increases, especially due to the fact that it has not been used in conjunction with a cut of the VAT rate.

"Companies that actually pay this tax and who generally pay all their duties, will be forced to raise prices to cope", Popescu feels.

The leader of ROMPAN estimates that the level of state budget contributions, following the introduction lump sum tax ,will remain unchanged.

Or it may very well drop...